EU Banking Supervisor Deflates EUR

If it did appear that the Euro Summit two weeks ago was too good to be true, it was. Finally it seemed that Italy had defeated Germany twice in one week. First on the pitch in the Eurocup semi-final and a second time on the European Summit where all pundits claimed Angela Merkel’s strong talk had vanished as Germany agreed to the European Stability Mechanism intended to recapitalize Spanish and Italian banks did not need sovereign guarantees.

Now after today’s meeting of the European Commission changed the tone of that meeting when the terms of the ESM bailout included a Banking Supervisor. Euro zone banks can will note require sovereign guarantees… as soon as the European Union members have established a new banking supervisory body. This of course derails the timeline that went from a few weeks into almost a year. That is the time estimate for members to agree on the specifics of the new regulatory body.

ECB President Mario Draghi in his scheduled ECB conference commented on this new regulatory body. He praised the idea, but warned that it must not create conflicts of interest with the European Central Bank or damage its reputation. He also mentioned the ECB should retain monetary policy independence from supervision.

Spainsh yields have not reacted favorably to the announcement as the market has already priced in an earlier bailout that right now its still tied to sovereign guarantees. The yield hit 7%, with only the promise of an extra year for Spain to meet its deficit requirements.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza